The overall divorce rate may be declining, but the rate of so-called “grey divorce” is on the rise – and that can spell trouble for retirees, especially women. That’s the sad conclusion we drew from this recent article in USA Today, written by reporter Daniel de Visé.
In some ways, despite what you may have heard, marriages today may be doing better than they have in recent years. Recent data published by Forbes shows that the overall rate of divorce in the two decades from 2000-2021 dropped from 4 divorces per 1,000 people to just 2.5. But for older couples, the data paints the opposite picture.
“The divorce rate has doubled since 1990 for Americans over 55,” de Visé writes. “For couples over 65, the rate has tripled.” For these “grey divorce” couples, the financial picture can be rough, particularly for women. “In financial terms, few ‘gray divorcees’ are better off,” the article warns.
Let’s take a look at this issue and see what the problem looks like – and what the solutions might be.
Grey Divorce Surges While Younger Couples See Declines
Experts are surprised at the increasing discrepancy between the divorce rate for older American couples versus younger ones, according to de Visé.
Researchers say that this widening gap, which they’re calling the gray divorce phenomenon, is prompted by a few factors demographically such as the aging of the American population, the increase in health and longevity in older people, and the overall delay in couples marrying.
“One in 10 people getting divorced today is 65 or older. That is remarkable,” says Susan Brown, professor of sociology at Bowling Green State University in Ohio. “A growing share of aging adults will be aging alone.”
Gray Divorce Costs Couples Emotionally and Financially
Everyone knows that divorce can be very expensive, and yet the costs to older Americans are even steeper than the average. De Visé writes, “A man can expect his standard of living to decline by 21 percent after a gray divorce, according to research by Brown and her colleagues. A woman’s standard of living will plunge by 45 percent. Both partners see their wealth decline by half.”
Denver-based certified financial planner Elizabeth Windisch adds, “I haven’t seen a scenario in which either partner is better off financially.”
The gender divides are stark. Brown notes that women appear to be more likely to initiate a gray divorce, and yet are also more likely to fare worse in terms of financial fallout. Women often take custody of the children, along with associated costs, and women who divorce after 50 tend to have less work experience than their partners. This can lead to less potential for future earnings.
De Visé provides the following examples of the biggest financial challenges facing older Americans who divorce, along with advice for meeting those challenges. Let’s look.
Grey Divorce Can Shatter Retirement Plans
Problem: “Gray divorce can gut your retirement account, leaving you little or no time to rebuild.”
Solution: “Make a new plan,” says de Visé. If you’re not yet retired, you need to start saving aggressively to make sure you build your savings back up.
“In a gray divorce, a couple’s collective retirement savings may be redistributed into equitable shares, one for each partner,” de Visé explains. “That might not sound so bad, until you consider all the other expenses that come with divorce: Finding new homes. Shopping for new health insurance. Paying legal bills.”
Michelle Crumm, a certified financial planner in Michigan, has seen how all of this can play out, firsthand. She represented a client, a high-level executive who divorced at 50 from her husband, who was a stay-at-home dad.
“She had to give half of her 401(k) to him. She has to pay him alimony,” Crumm says. “It looks on paper like this woman makes a ton of money, but in reality, there’s not a lot left.”
Crumm told her client her top priority should be “getting her retirement plan back on track.” That meant “maxing out everything she can” for retirement savings, diverting a larger share of her income into that diminished 401(k).
Grey Divorce Can Mean Choosing Frugality Over Luxury
Crumm’s client has had to do a lot of rethinking of what were normal habits. “She realizes she has a lot of work to do to catch up,” Crumm says. “She leases a car every year. So, we’ve had the conversation, ‘Should you buy a car?’ Maybe I go on vacation in the United States instead of a European vacation.”
And there have been knock-on effects, too, onto the client’s oldest daughter and her upcoming university plans. The client wants her daughter to go to a private institution, but because of her high executive salary, the tuition will very likely be full price no matter where she enrolls.
Crumm advised her client to choose a public university, instead, since “the flagship University of Michigan charges about $35,500 in in-state tuition, fees and living expenses, less than half the full cost of an elite private college,” de Visé writes.
In the end, Crumm was blunt. Four years at a private college would likely translate to four delayed years of the mother’s retirement. “She originally said 62,” Crumm says. “I said, ‘We’re probably looking at 65 or 67.’”
Grey Divorce Can Mean an Unplanned Return to Work
Problem: “It’s harder to earn money after a divorce if you haven’t worked in years.”
Solution: de Visé advises figuring out if you can live comfortably without returning to work, even if it means tightening up your budget substantially.
Gray divorce can be especially intimidating for the aging spouse who chose to give up their career to raise a family and hasn’t worked since. Patti Black, a certified financial planner in Alabama, recalls a client in her 50s whose husband asked for a divorce after thirty years of marriage.
It had been about 25 years since the client last worked. de Visé writes, “The woman was living in her dream home, now an empty nest, counting the years to a prosperous retirement. [She] soon realized she would never find a job with a salary that even approached what her husband earned.”
Black says, “We worked very hard to come up with a plan so that she didn’t have to go back to work.” This meant downsizing the client into a smaller home and reducing the budget.
“Now, she’s waiting for the dream home to sell,” de Visé writes.
Grey Divorce: Tough Choices Concerning the House
Problem: “You have to decide what to do with the marital home.”
Solution: “Consider all the costs of owning and maintaining that home before you decide who gets it − if anyone,” de Visé advises.
Any marital home can act as both an asset or a burden, in a gray divorce. “Let’s say the house has $250,000 in equity and 10 years remaining on the mortgage,” de Visé explains. “If the settlement delivers the dwelling to one spouse, then that spouse probably also inherits the mortgage payments. And the property taxes. And the insurance. And the maintenance.”
He adds, “If the spouse elects to refinance the mortgage, that could mean giving up a loan with a historically low interest rate for a new one at 2024 rates, which are a lot higher. The same issue arises if the couple opts to sell the old home and buy two new ones.”
The experts say: if the numbers don’t pan out, consider downsizing.
Is Grey Divorce Really the Best Way Forward?
To conclude, de Visé writes, “Gray divorce poses many other financial complications, from Social Security benefits to health insurance, estate plans and credit card debts. It’s almost enough to make you think twice.”
Black agrees, stating, “Count the costs. Maybe you try to ride it out. Maybe the money would be better spent on marital counseling than on a divorce attorney.”
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(originally reported at www.usatoday.com)